Australia’s biggest bank is under fire, and for good reason. But will CBA’s complete ownership of Aussie Home Loans be a blessing or a curse for the mortgage market?
The Commonwealth Bank of Australia is an easy target — big, slow to respond and easy to trip up. The ongoing money-laundering scandal is just the latest in a long line of issues that have plagued the group under outgoing CEO Ian Narev’s leadership.
Channel conflict has been a problem for the bank. Earlier this year, CBA responded to reports of channel conflict at one of its Sydney branches. Around the same time, the bank strategically cut out brokers from submitting new investor and interest-only home loans. Customers wishing to buy these products would need to go to a branch directly. Needless to say, this rubbed brokers the wrong way.
But brokers have spoken out and shared how they really feel towards the major banks and towards CBA in particular.
Information gathered by Momentum Intelligence for its Third-Party Lending Report: Major Banks 2017 found that Australia’s big four banks have largely fallen out of favour with mortgage brokers.
One broker commented: “CBA have lost the plot. Too hard to actually speak to a credit manager. Too many unskilled gatekeepers and layers of people who are unhelpful. Escalation processes are poor. BDMs are no help whatsoever, and the more you need them, the less likely you can get them.”
CBA’s mortgage strategy is clear — it plans to ramp up proprietary channels and reduce broker-originated loans. As CEO Ian Narev recently explained, the bank wants to provide a “compelling experience” to customers through its own channels. “We are investing heavily in an experience that will make our customers and other customers want to come to us and not through the broker channel.”
However, Aussie Home Loans will be a wholly owned subsidiary of CBA by the end of the month, and Mr Narev’s glowing reviews of the Aussie business are worth noting.
He said: "Right from day one of the investment in Aussie Home Loans in 2008, the underlying strategic premise for us was to make sure that Aussie represented a complete standalone entity and operation from the Commonwealth Bank. [That was] absolutely critical. Because the proposition [is] that [what] a broker provides its customers is independence, and they come to Aussie for independence.”
Brokers have traditionally fired shots at CBA’s ownership of Aussie by claiming that the bank is simply trying to push product through the brokerage, be they branded home loans or white label alternatives.
The reality is, CBA’s proprietary channel strategy is a business decision and so is its interest in Aussie Home Loans.
Brokers aren’t keen on CBA and CBA doesn’t appear too keen on brokers, but the Aussie business is a very significant hedge; if its proprietary channels fail to generate the required foot traffic, Aussie’s 200 retail stores and more than 1,000 brokers provide decent distribution channel.
The bank will essentially receive revenue from every home loan originated by an Aussie broker that doesn’t go to CBA.
Aussie will continue to operate as an autonomous mortgage broking business and CEO James Symond isn’t going anywhere. The group wrote more than 57,000 loans last year and is one of the most recognised brands in Australia.
Despite its proprietary channel posturing, Australia’s biggest bank knows that owning Australia’s biggest brokerage is a long-term strategy. Ultimately, it’s a recognition of the value that brokers provide to customers and a big tick for the profitability of the current model.